Cost-Cutting Strategies of Japanese Auto Companies in Response to Yen Appreciation

Abstract

In the past decade, the Japanese yen has dramatically appreciated against the U.S. dollar. In spite of the publicity that the soaring yen would worsen the international competitiveness of Japanese automakers, their sales to U.S. consumers have remained strong. This paper discusses the cost-cutting strategies of Japanese automakers in response to the yen's appreciation. The discussion concludes that as dollar-denominated costs become a larger portion of Japanese auto companies' total costs, a yen appreciation leads to a smaller increase in the dollar-denominated cost of Japanese automobiles and a larger decrease in the yen-denominated cost of Japanese automobiles, compared to the cost changes that occur when all input costs are denominated in yen. (FlO, F23)